Inflation down for all age groups but living costs for older people higher over the long term

Tuesday 24 March 2015

Inflation down across the board, however over a longer time frame, the over 50s have seen a greater increase in living costs.

Inflation down for all age groups but living costs for older people higher over the long term

Inflation has reduced this month to 0.0, however over a longer time frame the over 50s have seen a greater increase in living costs.

 

Saga Inflation Report – February 2015 bulletin

Key points: 

  • Consumer Price Index (CPI) annual inflation fell to 0.0% in February, down from 0.3% in January. This is the lowest rate of CPI inflation since 1960.
  • Retail Price Index (RPI) annual inflation stood at 1.0% in February, down from 1.1% in January.
  • The main contributions to the slowdown in the rate between January and February came from price movements for a range of recreational goods, food and furniture & furnishings.
  • Given that expenditure patterns vary across households, experienced inflation rates will differ between age bands. We calculate that annual consumer price index (CPI) inflation was as follows for the over 50s age bands in February 2015 (January 2015 figures in brackets):
    • 50-64: -0.3% (-0.1%)
    • 65-74: -0.5% (-0.3%)
    • 75 and over: -0.2% (0.0%)
  • We calculate that annual retail price index (RPI) inflation was as follows for the over 50s age bands in February 2015 (January 2015 figures in brackets):
    • 50-64: -0.1% (0.2%)
    • 65-74: -0.1% (0.2%)
    • 75 and over: -0.1% (0.1%)
  • Figure 1 illustrates that the 50-74 age group is already experiencing deflation based on the consumer price index measure due to the continued falls in the prices of essential items. In particular, food and utility prices are currently falling on a year-on-year basis – something which is particularly beneficial to the most vulnerable pensioners (for whom expenditure on these items constitutes a significant share of total spending).
  • However, over a longer time frame, the over 50s have seen a greater increase in living costs. Between September 2007 - when the financial crisis started to really get underway - and February 2015, the cost of living has risen by more for the over-50s than for the overall population on the broad-based RPI measure of prices. While younger age groups benefitted greatly from falling mortgage interest payments as the Bank of England cut interest rates during the recession, older age groups – who had largely or entirely paid off their mortgages or live in social housing –  in general failed to benefit from this. Further, the rising cost of essentials such as utilities placed pressure on the living standards of the over 50s. However, it seems that this trend has reversed, helping to significantly close the gap between the age groups. Compared with September 2007, living costs have risen for different age bands as follows:
    • 50-64: 24.3%
    • 65-74: 27.1%
    • 75 and over: 27.8%
    • Whole population (RPI): 23.4%
  • With headline inflation falling to zero in February, it looks likely that the UK will experience a spell of deflation in the coming months. In its latest Quarterly Inflation Report, the Bank of England suggested that, while deflation was more likely than not, any spell will be brief and inflation will begin to return towards its 2% target later in 2015.

 

 

Ends

 

 


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